Why is it in the News?

It stated that due to the swift evolution of digital markets, the current competition law framework may not timely address the anti-competitive conduct by large digital enterprises.

Context:

• The Committee on Digital Competition Law (CDCL), recently released its report recommending a new Digital Competition Law for India alongside the Draft Digital Competition Bill (DCB).
• The genesis of the report goes back to the 53rd Report of the Parliamentary Standing Committee on Finance (PSC), released in December 2022.
• The PSC Report acknowledged the unique dynamics of digital markets, noting their strong network effects and concentration.
• It highlighted that the current competition law framework may not address anti-competitive conduct by large digital enterprises in a timely manner due to the rapid evolution of digital markets.
• Consequently, the report emphasized the need for a new law to restrict certain leading players from engaging in specific anti-competitive activities that could distort competition.
• Activities such as self-preferencing, bundling and tying, and deep discounting were highlighted as areas of concern.

Key Proposals of the Draft Digital Competition Bill:

Predictive regulation:

• The dynamic nature of digital markets, characterized by constant evolution and interconnected offerings, necessitates a shift from traditional ex-post regulation to a forward-looking, preventive, and presumptive ex-ante framework.
• The draft Bill proposes this proactive approach as the way forward, acknowledging the limitations of regulating market abuse after it has already occurred.
• India's current Competition Act of 2002 follows an ex-post antitrust framework, which has faced criticism for its delayed response to market abuse.
• By the time penalties are imposed, market conditions may have already changed, further disadvantaging smaller competitors.
• To effectively navigate the complexities of the digital realm, it is crucial to implement predictive regulation that identifies potential antitrust issues and establishes clear guidelines to mitigate harm and maintain a level playing field.

Significant entities:

• In the Bill, certain "core digital services," such as search engines and social media platforms, prompt the Competition Commission of India (CCI) to designate companies as "Systematically Significant Digital Enterprises (SSDEs)."
• This designation hinges on diverse quantitative and qualitative criteria, encompassing turnover, user base, and market influence.
• The quantitative thresholds for SSDE designation include:
  • A turnover in India of at least Rs 4,000 crore over the last three financial years or a global turnover of at least $30 billion.
  • A gross merchandise value in India of at least Rs 16,000 crore, or a global market capitalization of at least $75 billion.
  • Additionally, the relevant core digital service should have a minimum of 1 crore end users or 10,000 business users.
• Entities falling outside these parameters may still be designated as SSDEs if the CCI deems their presence significant in any core digital service.
• SSDEs are prohibited from practices such as self-preferencing, anti-steering, and restricting third-party applications.
• Violations of these regulations may result in fines of up to 10% of their global turnover.

Associate Digital Enterprises:

• Recognizing the potential benefits of data sharing among entities within a major technology conglomerate, the Bill proposes to identify Associate Digital Enterprises (ADEs).
• Under this provision, if an entity within a group is identified as an associate entity, it would bear similar obligations as SSDEs, contingent upon its involvement with the core digital service provided by the primary company.
  • For instance, consider the relationship between Google Search and Google Maps, where data flow from the former informs the functionalities of the latter.
  • In this scenario, Google Maps could potentially be classified as an ADE.
• Similarly, the extent of data exchange between Google Search and YouTube could determine the classification of the latter as an ADE, depending on the recommendations provided to users.

Key Challenges with the Digital Competition Bill:

• Regulatory Approach: While the Digital Competition Bill (DCB) draws inspiration from international frameworks such as the UK's Digital Markets, Competition and Consumers Bill (DMCC) and the EU's Digital Markets Act, it could benefit from considering alternative approaches like Japan's "co-regulation" strategy.
  • Integrating such an approach might foster a better balance between competition and innovation.
• Timeline: The current May 15, 2024 deadline for submitting comments may not provide sufficient time for a thorough analysis of the complex issues addressed by the DCB and its potential impacts on various stakeholders.
  • A further extension of the consultation period should be considered.
• Inter-Regulatory Mechanisms: Overlaps between the DCB and existing sector-specific policy instruments need to be addressed.
  • Implementing an inter-regulatory consultation mechanism will ensure clarity and a harmonized approach across regulatory bodies.
• Capacity Building: Strengthening the capacity of the Competition Commission of India (CCI) and its Digital Markets and Data Unit (DMDU) is crucial, particularly through the integration of technology sector experts.
  • The DCB should outline specific measures to bolster the Commission's capacity and resources in order to effectively navigate the rapidly evolving digital landscape.

Need to Foster Digital Competition:

• Advocating for a Presumptive Framework: Government officials propose a shift towards a presumptive regulatory framework to address the entrenched pattern of anti-competitive behaviour by major tech companies.
  • Notably, Google faced a substantial fine of Rs 1.337 crore from the CCI for its anti-competitive practices within the Android ecosystem.
• Concerns Over Tech Monopolies: Officials express apprehension over the dominance of a handful of US-based tech giants, which has stifled innovation over the past decade.
  • High market barriers deter new entrants from challenging the dominance of established players, perpetuating a cycle of market concentration.
• Challenges for Emerging Players: Once a company secures a significant market share, its product often becomes the default choice for users, making it challenging for competitors to challenge its dominance.
  • Even prominent entities like Spotify have raised concerns about the restrictive policies enforced by industry giants like Apple and Google.
• Niche Alternatives and Market Dynamics: While niche alternatives such as Signal for messaging and DuckDuckGo for search engines exist, they remain niche preferences rather than mainstream choices.
  • The proliferation of big tech companies has facilitated affordable advertising rates for smaller businesses, but it has also intensified surveillance and data tracking practices, compromising user privacy.

Conclusion

The proposed DCB marks a notable stride towards regulating India’s digital markets. However, certain concerns persist about its content and policymaking mechanism. The timeline for stakeholder consultation is inadequate, necessitating an extension to ensure comprehensive feedback. Additionally, implementing inter-regulatory mechanisms and capacity building for the CCI remains critical to effectively navigating the evolving digital landscape. Therefore, addressing these issues will be pivotal in ensuring a progressive digital competition framework in India.